Oct. 14, 2023
Dear Sir/Madam Thank you for the opportunity to submit this comment on the proposed amendments to the definition of "exchange" under the Securities Exchange Act of 1934. I believe the expanded definition is overly broad, and could inappropriately impose exchange registration and regulatory requirements on numerous entities that the Commission does not intend to capture. In particular, the amended wording regarding systems that "bring together buyers and sellers" and "set rules" governing transactions is vague. As written, these criteria could conceivably apply to a wide range of entities and protocols that the SEC does not consider to be exchanges. For example, decentralised finance (DeFi) platforms and smart contracts may allow peer-to-peer exchange of crypto assets through an open protocol. The code itself "sets rules" but is not operated by a specific entity. Under the proposed definition, every participant in the smart contract may need to register as an exchange, which is likely not the intent. However, the breadth of the language creates uncertainty and risks chilling innovation in the development of new decentralised trading systems before they can engage with regulators. I urge the SEC to narrow the scope to focus specifically on custodial trading platforms and centralised entities providing exchange-like services for security tokens. Not everything in DEFI is to be classified as security. I suggest that DeFi platforms such as Uniswap are not exchange platforms. Rather, they are decentralised software that anybody is able to run. I propose that a better way to classify decentralised exchanges (DEXS) is as a data exchanger. Before assuming all digital assets traded on a DEX are securities, it is best to assume that each individual is merely publishing data to a blockchain. This decentralised exchange of data is no different from the way the internet currently works. Is Facebook Marketplace or Ebay now considered a financial exchange subject to the same rules, simply because they exchange data? Online marketplaces like ebay trade data representing physical and digital goods, and are not regulated as a financial exchange. Tokenized real-world or virtual assets on a blockchain, being traded on a DEX are conceptually no different. Thank you for the opportunity to comment on this important issue again.